Testing the Expectations Hypothesis: Some New Evidence for Japan (ICPSR 1306)

The deregulation of the Japanese financial markets and the
adoption of an interest rate policy instrument by the Bank of Japan
prompted a number of empirical investigations of the expectation
hypothesis (EH) of the term structures of interest rates in
Japan. This paper is a continuation of this research. It deviates from
the previous work on the EH in Japan in two respects. First, it tests
the EH by estimating a general vector autoregression (VAR) of the
long-term and short-term rates and testing the restrictions implied by
the EH on the VAR using a Lagrange multiplier test. Second, the issue
of stationarity of interest rates is considered. The paper not only
considers the possibility that Japanese interest rates are
nonstationary, but also analyzes the implications of nonstationarity
for the EH.

The deregulation of the Japanese financial markets and the
adoption of an interest rate policy instrument by the Bank of Japan
prompted a number of empirical investigations of the expectation
hypothesis (EH) of the term structures of interest rates in
Japan. This paper is a continuation of this research. It deviates from
the previous work on the EH in Japan in two respects. First, it tests
the EH by estimating a general vector autoregression (VAR) of the
long-term and short-term rates and testing the restrictions implied by
the EH on the VAR using a Lagrange multiplier test. Second, the issue
of stationarity of interest rates is considered. The paper not only
considers the possibility that Japanese interest rates are
nonstationary, but also analyzes the implications of nonstationarity
for the EH.

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Dataset(s)

Study Description

Citation

Thornton, Daniel J. Testing the Expectations Hypothesis: Some New Evidence for Japan. ICPSR01306-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2005-03-15. https://doi.org/10.3886/ICPSR01306.v1

Funding

Scope of Study

(1) Files submitted are the data files 0409dtd.wf1 and
0409dtd.txt and the program file 0409dtp.txt. (2) These data are part
of ICPSR's Publication-Related Archive and are distributed exactly as
they arrived from the data depositor. ICPSR has not checked or
processed this material. Users should consult the investigators if
further information is desired.